Time for some profit taking in Akamai

Akamai Technologies (AKAM) blew out earnings Wednesday night, reporting earnings per share of 51 cents, which easily beat Wall Street projections for 46 cents. Earnings for the first quarter of 2012 had come in at 36 cents. First quarter revenue climbed 15% to $368 million, well above Wall Street estimates of $357.5 million. Akamai guided Wall Street to revenue of $368 million to $378 million in the second quarter vs. Wall Street projections of $363 million. Earnings for the quarter, the company projected, would fall in a range of 44 cents to 46 cents against the analyst consensus of 44 cent a share.

On the report shares of Akamai climbed $6.39, or 17.7%, to $42.48.

You wouldn’t think that this company’s results share anything at all with Apple’s earnings disappointment of April 23. But they do. The big issue for both companies is the direction of margins in the future.

Much of Wall Street’s sell off of Apple shares is based on fears that the company’s margins will fall with lower margin products such as the iPad mini and lower-priced iPhones.

The bears on Akamai point to the same worries. Read more

Apple yes, but not quite yet

Apple (AAPL) doesn’t report earnings until April 23—which has put Wall Street analysts and investors deep into reading the tealeaves mode.

Yesterday’s leaves come from Cirrus Logic (CRUS), a supplier of audio chips for the iPhone and iPad. On Tuesday, Cirrus Logic reported that it would take an inventory reserve charge of $23.3 million in its fiscal fourth quarter, which ended in March. The bulk of that–$20.7 million—comes from a single, unnamed, high-volume customer. Since Apple accounts for 90% of revenue at Cirrus, everyone on Wall Street assumes that the customer in question is Apple. It looks like Apple switched to a newer product from Cirrus during the quarter and that Cirrus got stuck with extra inventory

But what’s it all mean? All the interpretations I’ve seen today are negative.

For example, some analysts have argued that Cirrus got stuck with extra inventory of the older chip after the switch because sales of iPhones and iPads had fallen below projections.

Another set of comments has argued that the timing of this announcement from Cirrus Logic suggests that Apple’s next refresh of its iPad product line is behind schedule. In 2012 Apple refreshed the iPad in April.

And I should probably add a leaf or two from China where a relatively low-visibility story in the People’s Daily criticized Apple for selling pornographic applications among the applications for the iPhone. As far as I can determine the charge isn’t true, but it is a haunting echo of the charges leveled at Google (GOOG) when it was driven out of the Chinese market.

The upshot is that Apple, which closed Tuesday at $426.24, closed yesterday at $402.80, down another 5.5%, as the shares broke below important technical support and challenging the psychologically important $400 level, and then broke through that level to $390.89 today as of 3:30 p.m. New York time.

The consensus on Wall Street is that Apple will report a disappointing quarter on April 23. Credit Suisse, for example, forecasts that Apple revenue will fall by 21% from the December quarter and climb just 10% year over year. Margins are expected to tumble and iPhone sales will be weak since it doesn’t look like Apple will refresh its phone lineup until the middle of the year.

Frankly that seems to be about right—as far as it goes. Apple and Samsung are engaged in a game of leapfrog with the company with the latest product release temporarily jumping ahead. Samsung’s Galaxy S4 is scheduled to go on sale next week and that will cut into Apple sales at the high end of the smart phone market.

For me disappointment over Apple’s April 23 earnings will mark the start of a buying opportunity in what has become a stock tied to product cycles. The April results will mark the likely bottom of that cycle and I’d be happy to get the next refresh of the iPad and iPhone at current share prices.

I’d just note that right now Apple trades at the same multiple as Dell. Apple’s forward price-to-earnings ratio is 9.18 (for the fiscal year that ends in September 2013) and Dell’s is 9.05 for the year that ends in January 2014. The PEG ratios (PE to earnings growth) are a bit different for the two stocks, however, with Apple selling at a PE that’s just 47% of its growth rate and Dell selling at 1.09 times its growth rate.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund did own positions in Apple as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

PC sales fall 14% and Microsoft, HP, and Intel get hit

Terrible day for PC stocks—and it’s pretty much all Microsoft’s (MSFT) fault.

You see Microsoft’s new Windows 8 operating system—the big redesign with a touch screen—was supposed to revive PC demand.

And it hasn’t. In fact it looks like Windows 8 has made a bad situation worse as the redesign has driven away—or at least delayed their purchasing decisions–the corporate customers that are the remaining mainstay of PC demand.

At least that’s the conclusion from market watchers IDC and Gartner. IDC’s newest data, released yesterday, show worldwide PC shipments falling 13.9% during the first quarter from the level of the first quarter of 2012. Gartner’s numbers are only slightly less grim with the company estimating an 11.2% drop.

It’s not just that the numbers are so bad—it’s that they are so much worse than they were supposed to be. Read more

Never count Intel out–especially when it pays you 4.2% to wait

I don’t think it’s wise—or profitable—to ever underestimate Intel’s (INTC) patience. Recent product announcements and news on design wins show that the company continues its long-term attack on markets where Wall Street seems to have concluded that Intel can never win. (Intel is a member of my Dividend Income portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ It pays a 4.2% dividend.)

“Never” is a long, long time.

First, Intel announced a slight upgrade on its Atom chip—the Z2580–at February’s Barcelona Mobile World Congress and that was almost immediately followed by news that China’s ZTE, the fourth biggest seller of mobile phones in the world, has decided to use it in some of its new phones. This is an important follow up to Intel’s win with the Motorola Razr I phone last year. Intel still doesn’t have a central position in mobile phone silicon but it is no longer completely locked out of that market and the company even has some momentum. The Atom Z2580 does look like it has closed some of the graphics gap with chips from ARM Holdings (ARM.LN in London and ARMH in New York.)

Second, Intel has beaten out Taiwan Semiconductor Manufacturing (TSM), the largest independent chip foundry in the world, to build chips for Altera (ALTR), a leader in field programmable gate array technology. Read more

Update Qualcomm: Thanks for the 40% dividend hike

Yesterday Qualcomm (QCOM) announced that it would increase its dividend by 40%–to 35 cents a share from 25 cents—and start a new $5 billion share repurchase program. (That program will replace an older $4 billion plan that still had $2.5 billion in purchasing power left.)

I see this as, first, a move to keep up with the Apples of the world by hiking the yield on the shares—about 2% after today’s move—to a roughly level roughly comparable to the 2.65% yield on Apple (AAPL) or the 2.65% yield on shares of Cisco Systems (CSCO.) Certainly Qualcomm has the cash flow and the cash balances to keep up.

Second, the dividend increase is a strong vote of confidence by the company’s board that Qualcomm will be able to keep up the pace of recent quarters. Unlike a share buy-back, which can be announced and then never completely executed, a dividend is a major commitment of company cash, and company boards know that the company’s share price will get pummeled if they have to cut the payout.

As of December 30 Qualcomm had cash and cash equivalents of $10.1 billion onshore and $18 billion offshore.

Qualcomm is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ . On January 31 I raised my 12-month target price on the shares to $82 from $77. The dividend and the buyback are transfers of cash from the company to shareholders; and while an increase to a 2% yield is appreciated, I don’t see the move as a reason to raise my target price at this point.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of Qualcomm the end of September. For a full list of the fund’s holdings as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/